Shares of Fermi (FRMI 0.42%) rallied as much as 16.5% on Wednesday, before settling into an 8.7% gain on the day, even as markets broadly sold off.
Fermi has been a controversial but very interesting AI infrastructure stock, given the early stage of its data center campus build-out and vast ambitions.
Fermi is building a massive power-delivery and AI data center campus, called Matador, in West Texas. However, as of today, it has not signed up a customer. Back in April, Fermi's CEO and CFO resigned amid a broad shake-up, in an apparent admission that its current leadership wasn't executing on drawing in customers to the project.
But yesterday, a Wall Street analyst circulated a rumor that the company may be working with artificial intelligence pioneer OpenAI as a Matador customer.
NASDAQ: FRMI
Key Data Points
JMP flags OpenAI's open interest
Late in the day yesterday, JMP Securities said that OpenAI has been assessing project Matador for its computing needs going forward. The note sent Fermi's stock soaring late in the trading day yesterday, and today the stock saw a follow-on rally.
In its most recent presentation, Fermi noted that it was on track to deliver 1.5 gigawatts (GW) at its site by 2027, on the way to an ultimate ambition for 17 GW by 2038.
It's unclear exactly how interested OpenAI is or what capacity it seeks. 1.5 GW is a large amount of capacity in and of itself. Investors should bear in mind that 1 GW is roughly equivalent to the output of one nuclear power plant. So, 17 GW would ultimately be a massive, massive project. Additionally, Matador is designed to deliver behind-the-meter power, or direct power, without connecting to the electric grid in Texas. That's another tantalizing plus.
Image source: Getty Images.
Big ambitions, big risks
It should be noted that there is no firm agreement between OpenAI and Fermi; yesterday's report was just speculation over "interest" and "talks." Additionally, there are several significant risks associated with Fermi as a stock.
First, this massive build-out will require capital investment before revenues and profits are generated. Second, there appears to be a power struggle within Fermi at the board level.
Former CEO Toby Neugebauer remains on the board and controls an outsize stake in Fermi's shares. Meanwhile, it appears he is still trying to wrest control of the company from the independent board members and install his own choice for CEO, Double Eagle Chairman and CEO John Sellers. However, one month ago, the Board sent a letter to shareholders warning that Neugebauer is trying to take control by calling a special meeting and holding a new election of board members. In the letter, the board also accused Neugebauer of damaging relationships with business partners during his time as CEO, among other conduct that led to his ousting.
Regardless of who is right, it appears there is an ongoing power struggle within the company. Combined with the uncertainty over Matador's build-out and the signing of any definitive client agreements, the stock remains too speculative for long-term investors.
